FTSE edges up to a new year high as utilities benefit from winter freeze

Monday 20 December 2010 12.01 EST
First published on Monday 20 December 2010 12.01 EST

Leading shares reached their best level of the year - by a whisker - despite the weather disruption, continuing worries about European sovereign debt, growing tensions in Korea and an early dip on Wall Street.

By the close the FTSE 100 had climbed 19.86 points to 5891.61, just half a point above the previous 2010 high achieved a week ago.

The winter weather blew retailers and airlines off course, but investors in utility companies could afford to put up with the cold. Not only is the sector a traditional safe haven, but the companies should benefit from increased demand for energy during the big freeze. So National Grid added 11p to 563p, British Gas owner Centrica climbed 4.7p to 335.3p, Drax was 11.2p better at 370.4p and Scottish and Southern Energy - where vague bid rumours continue to swirl - rose 15p to £12.

Among the high street chains, Marks & Spencer fell 2.5p to 372.9p, Next lost 17p to £19.68 and Dixons Retail dropped 1.51p to 22.84p. Troubled HMV was one of the biggest fallers of the day, down 3p to 28.5p.

SuperGroup, owner of the trendy Superdry brand, ended 27p lower at £13.34, not helped by a sell note from Execution Noble in the wake of the shares price fall following last week's results. Analyst Sanjay Vidyarthi said:

The aggressively negative reaction to the interim results may surprise some, but we think this is the start of a longer term correction. We maintain our view that it is easy to be seduced by high growth rates without taking account of the significant risks inherent in the SuperGroup model. Higher than expected costs, combined with a rise in the profit and loss tax rate, lead us to cut our top-end 2011 earnings per share by 18.6%, putting further pressure on the valuation. We cut our discounted cash flow based fair value from 1165p to 1000p and maintain our sell.

Meanwhile
British Airways was the biggest faller in the leading index, down 5p at 265.2p as snow and ice continued to disrupt its operations..

Elsewhere online gaming group 888 jumped 18% as investors had their first chance to react to the weekend's news of a bid approach from Ladbrokes, its second attempt to buy the company in four years.

Reports suggested a possible 70p a share offer valuing 888 at around £240m. 888 added 8.75p to 57.75p - still well below the mooted offer price - while Ladbrokes lost 1.5p to 126p. Analysts at Collins Stewart said there could be rival bid interest - US casino group Harrah's for one - but also warned that regulatory risk could yet scupper any deal. 888 has not yet secured a non-prosecution agreement with the US Department of Justice, for example. Analyst Simon Davies said:

888 ... lacks critical mass in a number of markets and has struggled to adjust its cost base to reflect reduced revenues. We believe that a 70p offer should be a slam dunk for investors, but see significant regulatory risk to a successful transaction. We will therefore stick at hold, but adjust our target price from 40p to 55p to reflect the potential bid premium.

Lower down the market Healthcare Locums added 11.25p to 100.75p after the medical staffing agency issued an upbeat trading statement to accompany the completion of the £77.8m purchase of Healthcare Australia.

But RCG Holdings, a fingerprint and facial recognition software firm, slumped 7p to 22.75p after it forecast a fall in full year profits compared to last year. It said it was selling more lower margin products, but also cut the carrying value of some of its assets and raised bad debt provisions. It also said it was aware of a tight working capital position and the need to exercise strict cost controls. Analyst Amisha Chohan at HB Markets said:

We are disappointed by the group's performance which encourages us to adjust our recommendation to a hold.